Japan Inc. snubs staff in spending plans

TOKYO (Nikkei) -- Flush with cash and reluctant to share it with employees, Japanese largest corporations are bullish about capital spending.

A large number of major listed Japanese companies are poised to increase their spending on capital investments, research and development, and mergers and acquisitions to achieve higher growth, a Nikkei survey found.

Many of these companies expect better earnings next year. It remains to be seen whether their spending plans will help drive the growth of Japanese economy amid higher expectations for an end to deflation. "Abenomics," the name given to the set of government policies to resuscitate the economy, has proved a boon for Japan Inc.

The Nikkei asked chief financial officers from 300 major listed companies from late October to mid-November. It received answers from 241 companies. Finance companies and Japan's 10 regional utilities were not included in the survey.

Publicly traded companies that end the fiscal year in March have record cash reserves of about 70 trillion yen combined. Focus at these businesses has turned to how they can tap their reservoir of this capital.

Companies were asked to name their two spending priorities. Improving production facilities and increasing efficiency was the priority among 53% of respondents.

Toshiba, for example, plans to increase capital spending on semiconductor chips, mainly NAND flash memory, for the first time in three years. Demand for chips is rising because of the growing popularity of smartphones. The company in August began expanding its Yokkaichi plant in Japan's central Mie Prefecture. It has also invested in micro-fabrication technology. Toshiba will likely spend about 170 billion yen ($1.66 billion) on semiconductor-related facilities this fiscal year, up 80% from a year earlier. Tokyo Gas, meanwhile, is spending on pipelines and building a liquefied natural gas station in Hitachi City, Ibaraki Prefecture, northeast of Tokyo.

The second largest group of the respondents -- 34% -- said they would spend on R&D, while 26% said they would use cash reserves for M&As. Fuji Heavy Industries plans to spend 60 billion yen on R&D this fiscal year, a 20% increase from 2012. It plans to develop environmental and safety technologies. Housing facility and building material maker Lixil Group announced in September that it will acquire German sanitary and bathroom fittings maker Grohe.

Other companies will spend money on revenue growth. Respondents that said they would use capital for dividend payouts or share buybacks, stood at 25%.

Scroogenomics

Bad news for the government, which is urging companies to share their wealth with employees. Regarding pay increases, 7% of respondents said they would spend cash reserves to raise salaries. Some companies, including precision motor maker Nidec, have announced pay raises. On the whole, however, major companies remain cautious about upping wages.

Investments for growth have been spurred by improving market conditions. The survey showed that three quarters of the companies now find it easier to raise funds in the market. Of them, 63 companies said they want to raise more capital or have done so.

About half of respondents said they expected next April's increase in consumption tax hike from 5% to 8% to be detrimental to their earnings. Those who said it would have a negative impact cited reaction to a rush of demand among consumers before the sales tax hike as the biggest reason, followed by a drop in personal spending and a slowdown in the domestic economy.

The government plans to then raise tax to 10% in October 2015. Three-quarters of those surveyed said the government should go ahead with the hike as planned. Only seven companies said the government should not do so.

The survey also found that many companies have a positive outlook for fiscal 2014. Some 56% said their net profit forecast would improve, far surpassing the 6% that said it would deteriorate. And 53 companies -- more than 20% -- expect double-digit growth in profits next year. Eight forecast growth of more than 30%. The optimism, points to a continued corporate recovery in fiscal 2014.

About 50% of the respondents said they expect the earnings environment to improve or slightly improve in the next six months. They cited a boost to domestic revenue as the biggest reason, followed by cost cutting and growth in Asian markets. Only 10% of the companies surveyed cited the weak yen as the reason, showing corporate profits are expanding for reasons other than the Japanese currency's recent weakness.

Sanitary products and diaper maker Unicharm has seen brisk sales of low-priced paper diapers in Asian countries such as Indonesia and Vietnam. The company thinks that a slowdown in emerging economies will have little impact on its sales. "We expect to achieve an increase in sales and profits next fiscal year and beyond," said Unicharm President Takahisa Takahara. "We hope to reach 1 trillion yen in sales in three years."

Leading construction company Shimizu has seen orders grow on the back of Japan's economic recovery. "Construction for orders received this fiscal year will begin in earnest next fiscal year and beyond," said Seikichi Kurosawa, executive vice president of Shimizu. "Then, we will see an improvement in profitability."

The survey also found that 39% of the respondents believe their stocks are undervalued. This suggests a disparity between the views of the CFOs and the assessment of the market. Japanese stocks have soared in the past one year, and yet these large listed companies believe that their stocks still have room to go up on the back of their profitability.